As a potential home buyer, you will need a mortgage in order to finance a house. However, you will first need to decide whether you want to work with a mortgage broker.
One of the most common misconceptions is that mortgage brokers and lenders are the same. Here we will talk about what a mortgage broker is, and how it compares to working with a lender.
What Is A Mortgage Broker?
To put it simply, a mortgage broker is a middleman between people who want to buy a home and the lenders that can help them finance their purchase. They do a lot of the important work for you, from gathering documents to pulling your credit history, and use this information to apply for loans for you in a short time frame.
- They act as an intermediary between the borrower and lender
- They control the transactions
- They take care of hunting down the best mortgage products and interest rates by using their personal network of financial institutions and lenders
How Does A Mortgage Broker Get Paid?
Mortgage brokers get paid a commission by the lender, which is typically 1 to 2 percent of the total loan amount, so there is no cost for you! You can also elect to pay your broker independently upfront. Brokers refer to this as “borrower-paid compensation.”
Here are a few ways your mortgage broker can not get paid under the Dodd-Frank Act, which controls how brokers charge their clients and how they make their money.
- Your broker cannot get paid by both you and your lender. However, your lender is free to pass the broker’s commission onto you in the form of closing costs.
- Your broker cannot tie their pay to your interest rate. This means that brokers can’t charge higher fees if you agree to a loan with a higher APR.
- Your broker cannot charge you hidden fees. Your broker must present you with an itemized list of fees upfront.
What’s the Difference Between a Mortgage Broker and Lender?
The difference between mortgage brokers and mortgage lenders is the ability to issue loans. A mortgage broker does not issue a mortgage, but they help you compare lenders and get you the best value for your loan.
On the other hand, a mortgage lender is the one that directly issues your mortgage. You can still buy a home without a mortgage broker, but you always must work with a lender to get a loan.
Why Should I Work With A Mortgage Broker?
Working with a mortgage broker comes with many benefits. It’s a good option to help expedite securing the right lender for your home purchase and saving on interest rates.
- Banks usually only give one option. A bank will only give you a single option: their own products and rates.
- Getting the best value. There are numerous lenders and financial institutions out there with different mortgage products at different rates and you want to make sure that you are getting the best product and rate.
- Compare with other lenders. Your mortgage broker will be able to gain access to your banks’ products and compare them to those from other lenders in order to ensure that you are getting the best option.
- Make your bank compete for your business. When you work with us you’ll have an experienced mortgage professional to help you make sense of your options and understand the benefits of each mortgage product.